A wake-up call for OCS development

Jay Collins

In the summer of 2008 the price of a barrel of oil peaked at $147, and a gallon of gasoline averaged a record $4 at the pump. Beleaguered American consumers called on their elected officials for relief, in part through increased domestic oil and gas supplies. Policy makers took notice and ended both the Executive withdrawals and Congressional moratoria which had locked up over 80% of the nation’s outer continental shelf (OCS) to exploration for our valuable oil and natural gas resources for nearly three decades.

As a result, we now face a policy world where we are no longer constrained by the arbitrary limitations that kept us from even considering developing domestic energy resources. It could not have come at a more critical time. America is experiencing a global economic downturn which has stifled energy prices from their record highs of last year. The prices for oil and gasoline are now down dramatically from their record highs. A barrel of oil now sells for a fraction of what it did at its peak in 2008, while a gallon of gasoline costs about half of its 2008 peak price. While the latter seems like good news for the American consumer, our dependence on foreign sources of oil and gas continues to grow, and demand for energy, and likely energy prices, will increase even more when global economic conditions improve in the future.

To some, the Obama Administration seemed to come out swinging against the offshore oil and gas industry, with seemingly single-minded emphasis on renewable energy programs and conservation, followed by the announcement of a six-month extension of the comment period on the next five-year OCS oil and gas leasing plan. Many in the offshore oil and gas industry reacted with understandable concern about the future.

There are no immediate signs, however, that the Administration intends to reimpose an Executive Withdrawal of portions of the OCS. On the other hand, there are clear indications that Congress will introduce legislation intended to limit offshore access physically and economically.

We seem to be at a crossroads in offshore energy policy. This is not the time to “hit the snooze button” on the wake-up call we as a nation received last summer. Instead, a sober, deliberative energy policy must recognize three facts: 1) We cannot significantly increase energy supply without expanded access offshore 2) The offshore industry safely delivers energy, jobs, money, and technology to the equation 3) Fossil fuels are a bridge to America’s energy future.

And while the absence of blanket bans against offshore oil and gas exploration is encouraging, the fact remains that only 13% of the OCS is available for leasing in the Department of Interior’s current five-year OCS oil and gas leasing plan.

Why the OCS

The OCS currently is producing 27% of the entire US oil production. However, that 27% of domestic oil production comes from only one half of one percent of the 1.7 billion acres of OCS lands. Producing energy from previous moratoria areas in the OCS holds the potential for hundreds of thousands of jobs and hundreds of millions of dollars in revenue. In 2008 alone, revenues from offshore energy contributed to $23.4 billion disbursed to Federal, State, and Indian coffers.

Oil and gas is one of the US’s only industries in a position to contribute to the US economy without costing the taxpayers a cent. According to a recent study, oil and natural gas resources in former or current OCS moratoria areas could generate $1.3 trillion in additional federal, state, and local government revenue, and over 76,000 jobs. These will be family-supporting jobs. Oil and gas exploration and production wages averaged $93,575 per year, according to 2007 Bureau of Labor Statistics data – over twice the average annual pay of $44,458 across all US industries.

The US OCS is conservatively estimated by Minerals Management Service (MMS) to hold undiscovered technically recoverable resources of over 419 tcf of natural gas and 86 Bbbl of oil. That’s estimated to be enough natural gas to heat 100 million homes for 60 years, and enough oil to drive 85 million cars for 35 years or to replace current Persian Gulf imports for almost 60 years.

In fact, there may be even more oil and natural gas offshore, because the more industry explores, the more they find. In the parts of the Gulf of Mexico where industry has been allowed to buy leases and explore, it has found about five times as much oil and three times as much natural gas as was once thought to be there.

In 1987, MMS estimated that the GoM held about 10 Bbbl of oil and 100 tcf of natural gas; yet, earlier this decade the Gulf was estimated to have 45 Bbbl of oil and 230 tcf of gas yet to be discovered, in addition to the 6 Bbbl of oil and 75 tcf of gas already produced since the 1987 estimates.

Our offshore energy resources are significant and can be developed safely. The technology that powers the offshore energy industry rivals that of the space industry. Oil and gas are safely being explored in waters of more than 10,000 ft (3,048 m) or nearly 2 mi (3.2 km) deep. Moreover, the injury and illness rate for offshore workers is about 70% lower than for all of private industry.

Highly regulated, the offshore industry produces 1.4 MMbbl of oil from the OCS every day, yet has a 99.999% record for clean operations. A 2002 National Academy of Sciences (NAS) report entitled “Oil in the Seas III” found that less than 1% of oil in North American waters is from drilling and extraction, while 63% comes from natural seepage and the remainder from non-point sources. Cleary, the offshore oil and gas industry enjoys an enviable environmental record.

As our nation strives toward greater reliance on alternative and renewable energy sources, fossil fuels will serve as bridge fuels to the future. Fossil fuels currently provide about 85% of our nation’s energy supply, while renewable energy sources provide less than 10%. These figures are forecasted to remain nearly unchanged through 2030.